Discusses the issues of strengthening Chinese participation in the oil and gas sector of the economies of the Central Asian region.
The Chinese economy at present is in the extensive stage of development. Under these conditions, high growth rates can be retained only by using additional sources of energy, primarily oil and gas, because of the increasing in the country the environmental problems associated with coal use. To meet the increasing need for imported hydrocarbons is a priority of foreign policy of the PRC. Over the past 15 years, China has stepped up its presence in the oil and gas sector as traditional producers of hydrocarbons (the Middle East and North Africa) and new participants in the global energy market, which includes post-Soviet countries of the Central Asian region (CAR).
For trade and economic relations between Russia and the Central Asian countries, the negative consequences were the collapse of the Soviet Union in 1991. The following year the volume of trade between Russia and Central Asia decreased by almost 10 times. The destruction of trade-economic relations to build for decades in the framework of common national economy complex of the USSR, led to the emergence of a systemic crisis in international economic relations in the post-Soviet space. The formation of the alternative links in the short term was impossible in the prevailing political and economic situation.
Since the beginning of 2000-ies there is a gradual strengthening of cooperation of Russia with the former Soviet Asian republics, but Russia's share in foreign trade of the countries of the region declined as a result of expansion of trade and economic relations with other States, primarily with China. Thus, the share of China in foreign trade turnover of Kazakhstan for the last 20 years has increased from 5% to 15%. In Kyrgyzstan noted the growth estimate from 3% to 25%, in Tajikistan – from 2% to 12%, in Turkmenistan – less than 1% to 55%, Uzbekistan 3% to 20%.
Despite the low share in the total trade turnover of Russia (about 4%), the market of the countries of the region is important for Russia from the point of view of export of finished products: it sold significant quantities of Russian food as well as machinery, equipment and vehicles.
As a result of the collapse of the Soviet Union, Russia has ceased to be the uncontested strategic partner for Central Asia. Currently, the main contender for this position is China. The degree of China's influence on the formation of economic policy of the countries of the region increases. Primarily, this interest stems from the necessity of finding new sources of energy, in addition, the Chinese side is interested in expanding geographically convenient market for their products. As instruments of economic impact used large-scale investments and associated commodity loans, which typically have a condition of the acquisition of Chinese equipment and technology that is working to maintain the pace of growth of the Chinese economy.
In turn, the political leadership in Central Asia are increasingly declared the idea of departure from the dominant role of Russia in foreign relations and diversification of cooperation geography. In addition, often triggered by the competitive situation in order to extract all possible benefits. Kazakhstan, Turkmenistan and Uzbekistan are actively integrated into the international division of labor as suppliers of energy resources. An objective convergence of interests resulted in the rapid establishment of cooperation between China and Central Asian countries in the oil and gas sector.
Kazakhstan and China are natural economic partners and strengthen cooperation in the field of energy, with substantial Chinese investment in Kazakhstan's projects of mining, processing, transportation and marketing of hydrocarbons. Bordering with Kazakhstan in the Xinjiang Uyghur Autonomous region (XUAR) is a major oil producing center in China (figure 1). Common interests led to the creation of joint enterprises and development of mutually beneficial projects.
Figure 1. The basic infrastructure of the communication oil and gas sector of China and Central Asia
Recoverable hydrocarbon reserves in Kazakhstan amount to about 4 billion tonnes of oil and over 1.5 trillion. cubic meters of natural gas. In 2017, oil production in the country has exceeded 85 million tons, of which over one quarter were produced by Chinese companies. In addition, from October of the specified year began the first deliveries of Kazakhstan gas to China, the exports for the full year amounted to 1.1 billion cubic meters of Natural gas from fields inland gas pipeline "Beineu – Bozoi – Shymkent" (throughput capacity of 10 billion cubic meters per year) is sent to the international gas pipeline "Central Asia – China" (capacity 55 billion cubic meters per year) and in the area of the settlement is sent Khorgos in China (figure 1). Gas transportation network of Kazakhstan as a whole has an annual capacity of about 90 bcm and has significant transit opportunities.
According to the agreement, Kazakhstan until the end of 2018 pledged to supply China with 5 billion cubic meters of gas, which the company plans to increase exports to 10 billion cubic meters per year. Gas production in Kazakhstan in 2017 amounted to 52.9 billion cubic meters.
The most significant imports of Kazakhstan from China are petroleum products (about 280 thousand tons per year) transported by rail (figure 1). Currently, Kazakhstan has three major oil refineries (refinery), but they can not meet domestic demand, while the Chinese refineries in Xinjiang (table 1) have proven themselves as reliable suppliers of oil products. Kazakhstan has contracts to supply crude oil to Chinese refineries in exchange for the finished product (a process known as "tolling").
Table 1. The operating refineries in Xinjiang
Coordinates (WGS 84)
The processing capacity of crude oil, million tons per year
The largest shareholders in the oil and gas industry of Kazakhstan from the PRC are "Chinese national petroleum Corporation" (China National Petroleum Corporation, CNPC) and "China petroleum and chemical Corporation" (China Petroleum & Chemical Corporation, Sinopec Corp.). Both corporations are managed by the "Committee for the control and management of state property of China" (SASAC), which reports directly to the State Council of the PRC (figure 2).
The presence of Chinese capital with shares from 50% revealed the following oil and gas companies of Kazakhstan: JSC "CNPC-Aktobemunaigas", JSC "CNPC-Aidanmunai", JSC "KMK Munay", JSC "MangystauMunaiGas" JSC, "PetroKazakhstan" and LLP "Buzachi operating", LLP "Emir oil" LLP, "Kuat Amlon Munay", JSC "Karazhanbasmunai", LLP "Sazankurak", LLP "ADAI petroleum company", LLP "Pricaspian petroleum company", LLP "Sagiz petroleum company". These companies are involved in developing more than 30 fields, the largest of which are the "Kashagan", "Zhetybai", "Zhanazhol", "Kalamkas", "Kenkiyak", "Karazhanbas", "Kumkol", "North Buzachi" and "Alibekmola".
Figure 2. The participation of Chinese capital in oil and gas companies of Kazakhstan
In the sphere of transportation of oil was created JSC "sztk "MunaiTas" LLP "Kazakhstan-China pipeline", the founders of which were Kazakhstan "KazTransOil" JSC and subsidiary of CNPC – China National Oil and Gas Exploration and Development Corporation (CNODC) in shares 51/49 and 50/50, respectively. The company was founded to design, construction and operation of internal pipelines on sections of the Atyrau – Kenkiyak (JSC "sztk "MunaiTas"), Kenkiyak – Kumkol (LLP "Kazakhstan-China pipeline") as well as pipeline Atasu – Alashankou (LLP "Kazakhstan-China pipeline") connecting Kazakhstan and Xinjiang.
The route Atyrau – Kenkiyak – Kumkol – Atasu – Alashankou oil pipeline is intended to transport oil in West Kazakhstan, Aktobe and Konkolski fields, as well as transit of Russian oil to China. It should be noted two sections of the input pipelines from Russia: in the area n. p. n. p. oral and Pavlodar (figure 1). In 2017, China was transported over 12 million tonnes of crude oil; the design capacity of the pipeline Atasu – Alashankou in the commissioning of intermediate pump stations is estimated at 20 million tons per year.
Total Chinese investment in oil and gas projects in Kazakhstan over the last 20 years has exceeded $ 40 billion.
China and Kazakhstan are also involved in joint projects in Europe. So, at the end of 2016 private energy company CEFC China Energy Company Limited and Kazakhstan, JSC "national company "KazMunayGas" (NC KMG) signed an updated package of agreements on creation of joint enterprise on the basis of the Romanian unit of NC KMG, the former Romanian refinery "Rompetrol". The company plans to implement the processing of Kazakh oil shipped to Europe.
In General, for 2016-2017 in the framework of economic cooperation of Kazakhstan and China agreed, over 50 projects to create joint ventures totaling $ 26 billion. At the same time Kazakhstan does not advertise the broad powers of the Chinese founders management businesses, as well as information about their future affiliation.
Thus, the Chinese leadership is committed to expanding the possibilities of joint ventures in Kazakhstan, and provides them financial support, therefore requires maximum, where possible, or parity powers for their management, thereby indirectly acquires significant opportunities to influence the oil and gas sector and the economy as a whole.
In Turkmenistan, CNPC oil and gas Corporation engaged in the exploration, development and mining of the contract area "Bagtyyarlyk", as well as the arrangement of the giant Deposit "Galkynysh". For its development, moreover, China Ashgabat has allocated more than $ 9 billion. targeted loans and nearly $ 5 billion. investment. Part of the export of the Turkmen gas goes to the payment issued by Chinese loans and supplies oil and gas equipment.
Despite the large recoverable reserves of hydrocarbons, primarily natural gas (approximately 20 trillion. cubic meters according to BP), Turkmenistan is currently in a rather vulnerable position in terms of economic crisis over a long period of low energy prices. The current situation is complicated by the lack of alternatives for the export of Turkmen gas to China, which is essentially the main source of foreign exchange earnings, as well as lack of ability tangible increase in supply in the near future.
In 2018, it was decided to postpone the construction of the fourth branch of the gas pipeline from Turkmenistan to China through Uzbekistan, Tajikistan and Kyrgyzstan with a capacity of up to 30 billion cubic meters per year. The total capacity of the three existing threads of the pipeline "Central Asia – China", which runs through Uzbekistan and Kazakhstan, is 55 billion cubic meters In 2017, Turkmenistan supplied China with more than 30 billion cubic meters of gas in Uzbekistan – about 10 billion cubic meters and Kazakhstan only started to supply, but the planned volume is also estimated at 10 billion cubic meters in 2017, China imported 94,7 billion cubic meters of natural gas, which is almost 25% more than in 2016.
Until 2010, 85% of natural gas export was carried out in the Russian Federation (in Iran – 15%), and in 2016 the supply of Turkmen gas to Russia were ceased. This decision was made by the Russian side due to the refusal of Turkmenistan from review of the contracts amid falling world prices for hydrocarbons, and also reduction in demand in Europe and Ukraine. The leadership of Turkmenistan considers Russia as a monopoly in the energy sector, and its gas policy as expansionist, and consciously go for confrontation, showing intransigence in matters of pricing. In 2017 due to contractual disagreements was also halted gas supplies from Turkmenistan to Iran.
The development of the West and connecting to the TRANS-Anatolian gas pipeline (TANAP) to export gas to Europe is complicated by the legal status of the Caspian sea, the bottom of which it is planned to build a pipeline to Azerbaijan, and requires the consent of all littoral States.
Despite the statements of the leadership of Turkmenistan's readiness to begin deliveries of gas to build the gas pipeline "TAPI" (Turkmenistan – Afghanistan – Pakistan – India) in 2019, these plans not baseless, as the Afghan side stated that the construction of its section of the pipeline will not end before 2020. The question on part of the route runs through the territory controlled by the Taliban. Corporation CNPC has repeatedly confirmed its readiness to invest in the project "TAPI".
Turkmenistan refused the Russian proposal for a joint protection of the Turkmen-Afghan border, citing the country's neutral status. This fact does not exclude the possibility of some concessions toward China interested in securing their investments.
Thus, China was, in fact, the only importer of Turkmen gas, despite the presence of four promising areas for export (to Russia, Iran, Europe and India). The increasing presence of Chinese capital in the Turkmen oil and gas industry, as well as the destructive policy of Turkmenistan in respect to some importing countries, may cause the impossibility to diversify the routes of export of Turkmen gas and increased dependence of the economy on foreign exchange earnings from China.
Uzbekistan is considered by Beijing in the first place, as important a transportation artery connecting Chinese consumers with the fields of Turkmenistan, as most of the exploited Uzbek gas fields belong to the medium-sized and are located in different parts of the country. In addition, the quality of the produced gas is relatively low, and before you get into natural gas pipelines and end users, raw materials needs additional processing. All of this significantly increases the costs of exploration, development of deposits, production and transportation of gas. Most of it is consumed domestically.
At the same time, Uzbekistan ranks third among CIS countries in terms of natural gas production (in 2017 was produced 56,4 billion cubic meters), and is a major exporter, with the prospect of serious increase of the supplied volumes of fuel for China.
The main condition for increasing exports of gas from Uzbekistan to China, is the modernization of the gas transportation system, which had not been updated since the 1980-ies, and China is regarded as the main investor in these works. China is already involved in joint exploration and development of oil and gas fields, development of transport and processing capacity of the Uzbek power system.
So, in 2013, GK Uzbekneftegaz and CNODC created a joint venture New Silk Road Oil & Gas for development of the gas fields "Dengizkul",": Khodzha-Davlet", "Sharky Alat". In addition, a subsidiary of the Chinese petroleum Corporation CNPC (China Petroleum Engineering & Construction Corporation, XIBU Drilling Engineering Company Ltd, China National Logging Corporation, etc.) are the contractors in the carrying out of works on arrangement of deposits, construction of production wells, their repair and testing. The largest joint project is the development of the field "Mingbulak". The project is financed by the Chinese loans granted under the guarantee of CNPC.
The postponement of the construction of the fourth branch of the gas pipeline "Central Asia – China" indefinitely, despite the formal initiative of the Uzbek side in this decision, but rather due to a temporary reluctance of China to strengthen its position in Central Asia in the energy sector, as well as to influence the formation of energy prices.
Thus, the preservation of Uzbekistan's current foreign and economic policy, China will strengthen its influence in the oil and gas industry, where the main priority for China is the transmission system. It will strengthen the position of Uzbekistan in the region, but will put the country into greater dependence on Chinese capital and technology.
The importance of Kyrgyzstan and Tajikistan to China is not as great as the rest of the CAR. This is primarily due to the absence of large oil and gas reserves and poor investment climate, additional difficulties are created by difficult mountainous terrain. However, China in the countries involved in exploration, invests in mining and other projects unfinished fourth thread of the gas pipeline "Central Asia – China" passes through the territory of Kyrgyzstan and Tajikistan.
One of the possible reasons of such interest of China – providing indirect pressure on Kazakhstan in the issue of tariffs for gas transportation through gas pipelines connecting Turkmenistan and Xinjiang through the territory of Kazakhstan, and also questions of cooperation in the energy sector.
- China aims at the gradual integration of the Central African Republic in its sphere of influence, making the choice in favor of a radical strengthening of positions in the economy of the countries of the region due to the intensification of project activities, increasing the volume of investments and loans, where the oil and gas sector plays a key role.
- China uses the desire in Central Asia to diversify energy exports and total political independence. As leverage with the Chinese leadership uses financial mechanisms, including the issuance of loans, supply of equipment on preferential terms, joint ventures, and eagerly takes part in regional and local projects, strengthening of financial and technological dependence of the countries of the region. While China does not put forward the leadership of the Central Asia political demands.
- Currently and in the long term interest of China focuses on the development of deposits, production and transportation of energy resources in the countries of the region. In addition, China is interested in export of petroleum products and other finished products of own production.
- The greatest interest in the region for China represent the oil and gas sector of Kazakhstan and gas sector of Turkmenistan. These countries are the basis for the implementation of the globalization strategy of Chinese oil and gas companies.
- Cooperation with Uzbekistan is predetermined by its geographical position and is in the development of the transmission system linking China with Turkmenistan and, potentially, from the Caucasus, the Middle East and the Mediterranean.
- China skillfully uses the contradictions arising between the countries of the region and Russia in matters of energy supply and pricing, often provoking these tensions. For China to include in the strategic cooperation for energosert new partners can be not only producing the energy resource, but also leverage on existing exporters of hydrocarbons, as in the case of Kyrgyzstan and Tajikistan.
- Diversification of Central Asia supply routes of hydrocarbons is detrimental to the interests of the Russian Federation, as the Central Asian and Russian raw materials are direct competitors in the energy markets. In addition, this fact would prevent the implementation of Russian projects to increase supply to China of energy resources.
- In the current conditions Russia needs to adapt to the presence of a powerful competitor with significant financial and technological capabilities, embedding in the transport and logistics and economic projects and strengthening trade cooperation with the countries of the Central African Republic.
- As countermeasures by the Russian Federation on reduction of energy supply CARS to China can be considered the intensification of own purchases of hydrocarbons in Kazakhstan with the resumption of import of Turkmen gas and the signing of contracts for their supply to China.
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